When US President Donald Trump meets with his Chinese counterpart Xi Jinping in Osaka at the Group of Twenty summit, they won’t solve the US-China trade conflict. At most they’ll agree to a truce and to have their people “talk.”
And the Chinese may just wait out the Americans – hoping for a new administration in 2020 interested in “win-win” solutions.
Critics who expect the worst of the US president warn that Trump wants to totally “decouple” from the Chinese economy.
He does not, and it won’t happen anyway – at least in the sense that the two economies split and operate in hostile isolation from each other.
But as often happens, Trump’s instincts are correct – though his explanations are mystifying.
After 40 years building up a near-pathological dependence on China, it’s time for US industry to pull back from the People’s Republic of China – even if not a total decoupling.
Some companies already are – thanks to a belated recognition that the China market is rigged against them – after Trump’s tariffs helped bring them to their senses.
How did this over-dependence happen? First there was the dream – never requited – of selling one of something to every person in China. Or it was the cheap labor. Move manufacturing to China, bump up revenues and share price – and there’s a nice bonus awaiting. Or just sell the entire company to a Chinese buyer and top executives make off with a bundle.
In other words, among much of America’s managerial class a get-rich-quick “I got mine” approach to China took hold – especially since long-term prospects were, well, “long-term.”
Disrupting global supply chains
Ask why “decoupling” from the PRC is a bad idea and the reply is often: “It will disrupt global supply chains.”
But Moses did not chisel Apple’s iPhone supply chains in stone atop Mount Sinai – right after the Ten Commandants.
Supply chains often change, and presumably have for most of recorded history.
And they change for many reasons, not just cold “business” calculations. Politics, invasions, wars, and even the nature of a regime matter just as much.
The smart companies always have contingency plans ready.
And American businesses have decoupled from many places over the years – including from the United States.
America’s chief executives and business elites had no problem “decoupling” the US textile industry in the 1980s and sending it to China. And they decoupled at least a few million manufacturing workers in other industries from their jobs – and their lives.
Indeed, they didn’t bat an eye.
And now American business complains about the difficulty of decoupling from China. Really?
Of course it takes effort to alter supply chains. But one gets the impression reluctance owes to laziness as much as anything.
And if the “supply chain” whinge-o-rama (as Boris Johnson might say) isn’t enough, there is the grim warning: “Products will cost more.”
A ballpark figure seems to be an extra US$600, maybe a $1,000, per family a year from a retreat from the PRC.
That’s a lot for somebody without a job – but not for somebody with one. And employed people have more money to buy other things as well.
But ask Chas Freeman, a former US diplomat and “China hand,” or Stephen Roach, once Morgan Stanley’s Asia head and now with Yale University, and it’s all the fault of American workers.
You see, these American “deplorables” don’t save enough money.
That’s true. But when you’re making $10 an hour at Walmart or getting a government check because of long-term unemployment – it is hard to stuff a hundred thousand into the 401(k) every year.
‘Maximizing shareholder value’ – a perfect excuse
The mantra that management’s sole duty is to “maximize shareholder value” also provided excellent cover for the great “coupling” to China of the last four decades.
Yet “maximizing shareholder value” is in essence a theory of uncertain origins – serving more as a convenient excuse so CEOs and chief financial officers can better look after their own interests.
Find a country where somebody will work for next to nothing (compared with Americans) and you can make a killing.
As for the effects on workers and local communities in the United States? “Can’t be helped. Shareholder value, you know.”
What’s the alternative? The Sir Richard Branson model: Put employees first. That makes for happy customers – and then the shareholder bit takes care of itself.
Nothing to do with business
The “decoupling” opponents might also recall some recent history.
As noted, decoupling often has nothing to do with commercial reasons. Apartheid-era South Africa was Africa’s most stable and prosperous market – and a vital source of strategic minerals.
Yet boycotts and sanctions by foreign governments and private groups against racial injustice forced a “decoupling” by major multinationals.
And these days, the so-called BDS (Boycott, Divestment, Sanctions) movement against Israel is trying to decouple Israel, the only real democracy in the Middle East.
So if decoupling – either partial or complete – is sometimes a matter of principle – assuming one has principles – the PRC is a prime candidate: Concentration camps, organ harvesting, dynamiting churches, black prisons, seizing international seas, threatening neighbors – these might prompt a few CEOs to reconsider their China investments.
And this is beyond the obvious business risks: a dodgy legal system, intellectual-property theft or strong-arming as the price of admission, counterfeiting, and discriminatory treatment.
And if Washington does something Beijing opposes, or an employee somewhere “likes” Taiwan on Facebook – and offends all 1.4 billion Chinese – you will be in trouble.
There is also the Communist Party of China wanting to put foreign companies out of business and replace them with local competitors. In other words “decoupling with Chinese characteristics” – once known as “Made in China 2025.”
Even worse, China is not just America’s business rival. It’s a military one as well. And even CEOs can’t forever decouple business from patriotism.
So while a full decoupling of the sort Trump’s critics warn about may not happen, things will never be the same for American companies and the China market. And it’s about time.